Multifactor models seek to improve the explanatory power of the single-index model by modeling the systematic component of returns in greater detail. These models use indi- cators intended to capture a wide range of macroeconomic risk factors and, sometimes, firm-characteristic variables such as size or book-to-market ratio. 8. An extension of the single-factor CAPM, the ICAPM, is a multifactor model of security returns, but it does not specify which risk factors need to be considered.     KEY TERMS single-factor model single-index model scatter diagram regression equation residuals security characteristic line market model multifactor models     WEBSITES All of the sites listed below have estimated beta coefficients for the single index model.   http://www.dailystocks.com http://finance.yahoo.com http://moneycentral.msn.com http://quote.bloomberg.com         PROBLEMS 1. A portfolio management organization analyzes 60 stocks and constructs a mean- variance efficient portfolio using only these 60 securities. a. How many estimates of expected returns, variances, and covariances are needed to optimize this portfolio? b. If one could safely assume that stock market returns closely resemble a single-index structure, how many estimates would be needed? 2. The following are estimates for two of the stocks in problem 1.     Firm-Specific Stock Expected Return Beta Standard Deviation   A 13 0.8 30 B 18 1.2 40